ACCT2511 Week 5 Assessment – Practice Question and Solution
You are given the following information about the Balance Sheet of Katoomba Limited at 30 June
2027.

DR CR
$ $
Cash 50,000
Inventory 15,000
Accounts payable 10,000
Share capital 50,000
Retained profits 5,000
65,000 65,000

The following transactions occurred during the year ended 30 June 2028 for Katoomba Limited.

1 Purchased $180,000 of inventory on credit.
2 Issued new shares for $700,000 cash.
3 Sold inventory costing $130,000 for $400,000. All sales are on credit.
4 Received $230,000 from accounts receivable.
5 Borrowed $250,000 from the bank on 1 July 2027. The loan is due on 30 June 2030
and carries an interest rate of 10 per cent per annum. Paid $8,000 interest on this
loan on 30 June 2028.
6 Paid a $24,000 insurance policy on 1 November 2027, covering 1 November 2027 to
31 October 2028.
7
8
9
On 1 June 2028 received a deposit of $100,000 for work to be carried out on 1
October 2028.
Cash dividends of $4,000 declared and paid.
Bought equipment for $40,000 paying cash on 1 July 2027. Depreciation on the
equipment for the year ending 30 June 2028 is $4,000.
Part 1:
Prepare journal entries and adjusting journal entries for each transaction between 1 July 2027 and
30 June 2028. Do not use abbreviations or account numbers for account names. Narrations are not
necessary.

Transaction
number
Account name Debit
$
Credit
$

Part 2:
Prepare the Income Statement for the year ended 30 June 2028.

Part 3:
Prepare the Shareholders’ Equity section of the Balance Sheet at 30 June 2028.

Solutions
Part 1
1 Dr Inventory 180,000
Cr Accounts Payable 180,000

2 Dr Cash 700,000
Cr Share Capital 700,000

3 Dr Accounts Receivable 400,000
Cr Sales revenue 400,000

Dr Cost of Goods Sold 130,000
Cr Inventory 130,000

4 Dr Cash 230,000
Cr Accounts Receivable 230,000

5 Dr Cash 250,000
Cr Bank Loan 250,000
Dr Interest Expense 25,000

Cr Cash 8,000
Cr Interest Payable 17,000
6 Dr Insurance Expense 16,000
Dr Prepaid Insurance 8,000
Cr Cash 24,000
or
Dr Prepaid insurance 24,000
Cr Cash 24,000
Dr Insurance expense 16,000
Cr Prepaid insurance 16,000

7 Dr Cash 100,000
Cr Unearned Revenue 100,000

8 Dr Retained profits 4,000
Cr Cash 4,000

9 Dr Equipment 40,000
Cr Cash 40,000
Dr Depreciation expense 4,000
Cr Accumulated depreciation 4,000
Part 2

Katoomba Ltd
Income Statement for the year ended 30 June 2028
$
Sales Revenue (Sales are acceptable) 400,000
Less: Cost of goods Sold -130,000
Gross Profit 270,000

Less: Expenses
Interest Expense -25,000
Insurance Expense -16,000
Depreciation Expense -4,000
Net Profit 225,000

Part 3

Katoomba Ltd
Balance Sheet as at 30 June 2028
$
Shareholders’ Equity
Share capital 750,000
Retained profits 226,000
Total shareholders' equity 976,000